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Understanding business models in the climate change space

  • By KCV
  • October 29, 2018

Looking at the climate change space generally, the sector by nature is new. A lot of the things in the sector are new especially from a business model perspective. KCV works with a mixture of models such as B2B, hire purchase and pay to go. The technologies and products may not necessarily be new as some of them have been around for a long time. For instance, solar energy has been there since time immemorial, the only add on is the new innovations in energy storage and use spread across the sectors.

The uptake of these technologies is increasing. The shift to renewable sources of energy is slow but gradual. Another example is the use of biogas which has been in existence for a long time.  New ways of commercializing it are coming up including add-ons to these products which makes it crucial to alter business models in the sector.

Bringing in the new technologies or products in this space is capital intensive and new expertise is also required to ensure that the innovations are able to scale.

Hydroponics is also not a new concept but companies like Hydroponics Africa Limited are finally doing it in such a way that people can afford it. What these companies are doing is improving the supply chain, breaking down the products into sizes that people can afford and trying to increase the utility of these products.

“Coming up with these additional products makes it easier for the consumers to find value in these models,” notes Paul Ohaga, Chief Investment Officer at Kenya Climate Ventures.

People are now taking the old technologies and finding a way of increasing the utility. Biogas has been there for ages only that it has taken time to be commercialized. Sistema.bio has seen the potential of biogas and looked for ways to commercialize it. They have looked into the supply chain, they are doing inflatable packaging bags which are easy to manufacture therefore the logistical costs are reduced.

“The company is trying to enhance the utility of biogas to make it a viable investment for the end user. They are providing utilities such as hay cutters for the livestock, water pump, cooking energy so that people can embrace the technologies around climate change.

Attempts to break down these products into sizes that people can afford have been successful. For example, the cook stove sector has seen the emergence of products tailored to fit different markets. Services such as pay as you go have facilitated low income households to afford clean cooking options depending on the customer profile.

Adopting these models comes with challenges. One of the biggest challenges is businesses in the climate space is that a lot of the technologies and products are capital intensive. They are not the usual fast moving consumer goods. Consumer financing ends up being the model to be able to enhance the value to customers to increase adoption, they have to find ways to make the products affordable and attractive.

“A lot of the businesses are built around the premise of consumer financing being available because their value is long term,” noted Ohaga.

Market adoption is also a challenge. Convincing consumers to try out new products is not easy. Most products and services in the climate space are new and the biggest market for these products tends to be in the rural areas, and not so much in the urban areas, where the knowledge and purchasing power is not high. These cannot provide enough market to become sustainable.

“The people in this target market experiment less and tend to rely more on referrals and how best it worked for somebody else,” he adds.

In some cases, adoption of the products may require behavior change which most times is not easy to achieve and might take longer.

The other challenge that the businesses face is people. Start-ups  in the climate space are new and finding the right people with the technical skills for the product or service is key in pushing for adoption.

“This is one of the challenges that we are trying to bridge because people are more inclined to support a business that is backed by an investor. Lending our name to the business brings some form of security,” notes Ohaga.

Moving forward, there is a future of business models in the climate change space. Pivoting towards mainstreaming models which include supply chain, manufacturing, distribution and marketing will go a long way in supporting start ups to scale.

KCV is uniquely placed to work with companies whose business model is being tested as compared to other investors who want the business model to be proven from the onset. “We are designed to deal with that ambiguity through business model enhancement by taking the risk to fund the business.”